The Employer-Employee Disconnect on Compensation: Only Half of Workers Feel Pay is Fair

October 30th, 2014
Written by: Elizabeth Richards

We’ve been saying for a while that employee compensation requires a strategy and a plan. And organizations are starting to get the message. But it takes time.  That’s why a recent Washington Post article poked the employee compensation hornet’s nest by highlighting that “only one half of employees felt they were paid fairly compared to other people in similar positions at their organization.”

According to the article, “Unhappy with your raise this year? In Washington, you’re not alone.”

A Towers Watson study suggests companies aren’t doing a good job of rewarding high performers or communicating their pay decisions to employees, (finding that) only one half of employees felt they were paid fairly compared to other people in similar positions at their organization, and less than half reported a clear link between pay and performance.

Uh oh.  The perception by employees that compensation is unfair leads to all manner of bad outcomes and vulnerabilities for employers, including employee churn and dissatisfaction, lower morale and reduced performance levels.

So, are organizations being “penny wise and pound foolish” by paying lower salaries to some employees vs. others in similar positions? Perhaps, but not necessarily.  Remember, the study represents the employees’ perception.  Therefore, it could be that the employer:

• Has a coherent compensation strategy and plan but has done a poor job of communicating the rationale to employees;
• Implemented an outdated compensation plan which was relevant years ago–but has not been revisited since; or
• Rolled out a compensation plan that is inherently flawed—for example, it doesn’t take into account the right market benchmarks.

In any of these situations, the solution includes these elements:

1. Invest in a thorough, expertly developed compensation assessment and strategy.  The cost isn’t insignificant, but it pales in comparison to your overall labor costs;
2. Make sure the implementation includes an effective employee communication component. The importance of this cannot be overstated; and
3. Plan to revisit the compensation plan no more than three years from when it was implemented.  Things change—salaries, trends, perceptions—and no compensation plan remains relevant for more than three years.

In a future blog post we will deal with the study’s other finding:  that “less than half (of respondents) reported a clear link between pay and performance.”